Material requirement planing (MRP)

Material requirements planning (MRP) is a system for calculating the materials and components needed to manufacture a product. MRP is one of the most widely used systems for harnessing computer power to automate the manufacturing process. It consists of three primary steps:

• Taking inventory of the materials and components on hand
• Identifying which additional ones are needed
• Scheduling production or purchase.

IBM engineer Joseph Orlicky developed MRP in 1964 after he studied the Toyota Production System, which was the model for the lean production methodology. Power tool maker Black & Decker built the first computerized MRP system that same year, according to several sources.

It's important to note, however, that MRP and lean production are not the same and are considered by some practitioners to be antithetical, though some say MRP can help with lean production. MRP is considered a "push" system -- inventory needs are determined in advance, and goods produced to meet the forecasted need -- while lean is a "pull" system in which nothing is made or purchased without evidence of actual -- not forecasted -- demand.

Orlicky's ideas spread rapidly throughout the manufacturing sector after the 1975 publication of his book, Material Requirements Planning: The New Way of Life in Production and Inventory Management, and by the early 1980s, there were hundreds of commercial and homegrown MRP software programs.

Orlicky died in 1986. A second edition of the book, updated by George Plossl, was released in 1994. The current version, Orlicky's Material Requirements Planning, Third Edition is a 2011 update by consultants Carol Ptak and Chad Smith. It adds advice on how to use MRP to run a "demand-driven" planning process that uses actual sales orders, rather than the typical MRP method of a sales forecast, to calculate material requirements. Called DDMRP, this newer "pull" approach is controversial and viewed by some as a violation of important principles established by Orlicky.

MRP basics

MRP uses information from the bill of materials (a list of all the materials, subassemblies and other components needed to make a product, along with their quantities), inventory data and the master production schedule to calculate the required materials and when they will be needed during the manufacturing process.

MRP is useful in both discrete manufacturing, in which the final products are distinct items that can be counted -- such as bolts, subassemblies or automobiles -- and process manufacturing, which results in bulk products -- such as chemicals, soft drinks and detergent -- that can't be separately counted or broken down into their constituent parts.

MRP vs. ERP

An extension of MRP, developed by management expert Oliver Wight in 1983 and called manufacturing resource planning (MRP II), broadened the planning process to include other resources in the company, such as financials and added processes for product design, capacity planning, cost management, shop-floor control and sales and operations planning, among many others.

In 1990, the analyst firm Gartner coined the term enterprise resource planning (ERP) to denote a still more expanded and generalized type of MRP II that took into account other major functions of a business, such as accounting, human resources and supply chain management, all of it managed in a centralized database. Both MRP and MRP II are considered direct predecessors of ERP.

ERP quickly expanded to other industries, including services, banking and retail, that did not need an MRP component. However, MRP is still an important part of the ERP software used by manufacturers.

Objectives of material requirements planning

Not surprisingly, the primary objective of MRP is to make sure that materials and components are available when needed in the production process and that manufacturing takes place on schedule.

Effective inventory management and optimization is another goal of MRP. While MRP is designed to ensure adequate inventory at the required times, a company can be tempted to hold more inventory than is necessary, thereby driving up inventory costs.

MRP can also improve manufacturing efficiency by using accurate scheduling to optimize the use of labor and equipment.

Proponents of MRP and DDMRP say these approaches can help achieve a better matching of supply and demand. This achievement, in turn, can reduce production costs and increase revenues as customer demand is fully met and no revenue opportunities are lost from missed ship dates or inventory shortfalls.